Making a Plan to Tackle Debt – Start Paying Off Now

We never start out thinking we will be in debt. We go to work after high school, or many of us go to college. We start accumulating debt right then. We never think twice about it when we sign up for our student loans. We aren’t even thinking about it as we start working and buying cars and homes… then it’s there before we know it. It starts with a few items you think you need. You buy them on credit. You get a car loan. Your student loans come out of deferment and your salary isn’t what you thought it would be. Perhaps you couldn’t even find a job! DEBT! That’s what’s next.

Everything I am sharing this week is what I learned, but only when I was in my mid-30s. I had no clue you could live on cash only. Really. I suppose I did that in college but never thought about what I was doing. But it was much smarter and I didn’t have debt back then. It took me over 10 years out of college to learn the very hard way how to manage money and start on the path to being debt free.

Step 1: Cash Budgeting
Our first step was switching to cash-only budgeting. Check out how to do that in a few simple steps here

Step 2: Determine Your Debt & a Plan
The next step in this process is determining all of your debt and developing a budget plan to pay it off quickly. The method I describe is not my own, just how we used it to make it work. We used the snowball debt method. I believe it was thought of by Dave Ramsey. The web-based app I use for bills and budgets has a snowball debt calculator built in as well.

What is snowball debt payment?
This is my own analysis and is not from an expert opinion. It’s really very simple. You start by taking the smallest amount of debt you have from your list of debts. You put all the money you can from your budget into paying it off. It gets paid off quickly this way, while you only pay the minimum payments on the other debt.  Once the first debt is paid you take the payment amount and roll it to the next debt PLUS the minimum payment you were making on the second. Thus making the payment even larger. Once you have paid the second debt, you take ALL of that PLUS the minimum of the third debt. This makes an even larger payment. By the time you reach the largest debt owed you are making the biggest debt payment possible with no other debt left.

Why would you pay the lowest amount first instead of the highest interest?
This is a preference and some financial experts would disagree on this method. It’s your choice because it’s your debt. I am NOT a financial advisor. I am just a person that had a lot of accumulated debt with my husband and have begun paying our way out very quickly. You should seek help from a financial advisor if you are unsure what method is best for you and your family.

Making payments and quickly paying off lower debts keeps your motivation high. Paying off higher interest rates is great too, but it might take you longer if the debt amount is larger. You may feel more frustrated with the process. I can say that quickly paying off lower debts is a great feeling. When you are down to your last few debts and you are putting larger amounts towards them you do feel like you are accomplishing your goals!

Where do you start?
You need to get all of the account information for every debt that you have. If you are just starting on a cash budget you will need to add in the debt amounts from the monthly credit cards you were (unless you were lucky to pay those off with savings or cash to start fresh for the month).

I have created a packet of tools to help you from the cash budget to budget and more! At the end of this post, there is a form to get yours now! You fill it in with a timeline for paying it off. You have your starting balance, then the minimums listed, and you can choose what you can budget towards it. Put your sheets in order based on the lowest debt owed on the top of the pile. You will then need to create your budget with the most amount of money you can budget going to that top sheet first. (Budgeting is next week). You can calculate (using the interest rate for that debt) your balance after each payment giving you a timeline of when it will be paid off. You will do the same for each sheet following. You can base the payment amount on when the first one is paid off, then the second etc. You will coordinate your sheets together. You will then have a rough timeline of your very last payment on your very last debt! What a feeling! It’s an amazing thing!

Want to go a more tech-y route?
I LOVE the site clearcheckbook.com. We are not affiliated with this site, I just use it personally to track all of our cash, accounts, and our debt. It allows for scheduled transactions and manual transactions. You can add multiple types of accounts and it syncs all devices and account information. That means if your husband takes money out or needs to access the information, it will be synced with your own.

The site even offers a snowball debt calculator. You will need your opening balances as well as your interest rates and minimum payment due. You enter each payment each month and it shows you a progress line after each payment. It gives you a 100% (as long as you fill in the information correctly when starting) accurate timeline for debt payment. When you finish paying a debt it disappears from your list of debts in their system. (A mortgage is a bit tricker in their basic tool but you will get an idea and can adjust it as you pay it down).

There is no personal information entered into your account with clearcheckbook.com – so your accounts are not at risk. It’s all based on manually entering numbers. It doesn’t track your checking for you or anything like that (the free version doesn’t). They do offer paid services but I don’t use those so I cannot speak to those.

Has it been working for us?
YES! It’s amazing how this method has worked. I do firmly believe that switching to cash is the true first step to getting rid of debt. It stops you from spending without thinking and makes you focus on where your money is going. Once you are in control, this method helps you focus your cash into the most motivating and quickest payment method possible. You stay on a fixed budget the whole time while continuing to be able to make larger and larger debt payments. It’s a great feeling to watch your debt sheets being thrown in the trash or your debts disappearing from your screen. When you have had a list of debts 6-10 deep (or maybe more for you!) and you are down to the last three it’s awesome! It’s freedom!

Check back next week for budgeting tips and tools. I have monthly and bi-weekly budgeting tools and tips to help you focus on where your money goes. Let’s put it to its best use.

Share with us what you do to tackle your debt!

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